Page 42 - Investment Advisor - December 2023

cOmPlIANce cOAcH

By Thomas D. Giachetti

seC Highlights exam Priorities for 2024

examiners will review how advisors mitigate conflicts of interest.

he Securities and Exchange rates. This may include private funds
Commission’s Division of experiencing poor performance, signifi-
TExaminations recently released cant withdrawals and valuation issues,
its 2024 priorities, identifying the key and private funds with more leverage
risks and topics for the coming year. and illiquid assets.
The SEC publishes these priorities to • Adherence to contractual require-
encourage firms to focus compliance ments regarding limited partnership
efforts on these areas. advisory committees or similar struc-
The below is not an exhaustive list tures, including adhering to any contrac-
of what might be focused on during tual notification and consent processes.
an examination. Entity history, opera- • Accurate calculation and alloca-
tions, services, products offered and tion of private fund fees and expenses
other risk factors are all within scope. Critical compliance should also be (both fund-level and investment-level),
I sat down with colleague Thomas centered around compensation arrange- including valuation of illiquid assets,
Kellerman to learn more about the ment assessments focusing on: (1) fidu- calculation of post-commitment-period
SEC’s announced priorities. ciary obligations of advisors to their management fees, adequacy of disclo-
Advisors must be aware that invest- clients, particularly with respect to the sures, and potential offsetting of such
ment advice regarding complex, illiquid advisors’ receipt of compensation for fees and expenses.
and unconventional products will be services or other material payments • Conflicts, controls, and disclo-
scrutinized as well as advice suited for made by clients and others; (2) alterna- sures regarding private funds managed
older investors saving for retirement. tive ways that advisors try to maximize side-by-side with registered investment
Also, processes for determining that revenue, such as revenue earned on cli- companies and use of affiliated service
investment advice is provided in cli- ents’ bank deposit sweep programs; and providers.
ents’ best interest will be reviewed. (3) fee breakpoint calculation processes, • Compliance with Advisers Act
Examinations will address how advi- particularly when fee billing systems are requirements regarding custody, includ-
sors mitigate conflicts of interests and not automated. ing accurate Form ADV reporting, timely
allocate investments to certain accounts, Attention will be paid to safeguard- completion of private fund audits by a
such as wrap fee, non-taxable and bro- ing assessments of advisors’ controls qualified auditor and the distribution of
kerage commission. to protect clients’ material non-public private fund audited financial statements.
In particular, examination focus will information, particularly when multiple All registrants should be aware that
include marketing practice assessments advisors share office locations, have sig- the compliance date for recently adopt-
for whether advisors have: (1) adopted nificant turnover of investment adviser ed rules shortening the standard set-
and implemented reasonably designed representatives or use expert networks. tlement cycle for most broker-dealer
written policies and procedures to pre- There will also be disclosure assess- transactions to one business day after
vent violations of the Advisers Act and ments to review the accuracy and com- the trade date is May 28.
the rules thereunder including reforms pleteness of regulatory filings, including Regardless of the type of advisor,
to the Marketing Rule; (2) appropriately Form CRS, with a particular focus on cybersecurity, crypto assets and their
disclosed their marketing-related infor- inadequate or misleading disclosures associated products and services, and
mation on Form ADV; and (3) main- and registration eligibility. anti-money laundering programs con-
tained substantiation of their processes Thomas further advised that the SEC tinue to be a perennial SEC focus.
and other required books and records. will be looking at the following when
Marketing reviews of disseminated reviewing private fund advisors: Thomas D. Giachetti is chairman of the
advertisements (hypothetical perfor- • The portfolio management risks Investment Management and Securities
mance, third-party ratings, testimonials) present when there is exposure to recent Practice Group of Stark & Stark. He can be Adobe Stock
will continue to take place. market volatility and higher interest reached at [email protected].

40 Investment AdvIsor December 2023 | ThinkAdvisor.com